Loss aversion and trade policy
By: Caroline Freund and Çaglar,Özden.
Contributors: Özden, Çaglar.; World Bank.
Series: Policy research working paper ;; 3385; Policy research working papers (Online) ;; 3385.
Publisher: World Bank
Published: 2004
Place of publication: [Washington, D.C
Language: eng
Format: Electronic resource
Subjects: Commercial policy.
Description: "Freund and Ozden provide new survey evidence showing that loss aversion and reference dependence are important in shaping people's perception of trade policy.  Under the assumption that agents' welfare functions exhibit these behavioral elements, they analyze a model with a welfare-maximizing government and with the lobbying framework of Grossman and Helpman (1994).  The policy implications of the augmented models differ in three important ways:  There is a region of compensating protection, where a decline in the world price leads to an offsetting increase in protection, such that a constant domestic price is maintained;   Protection following a single negative price shock will be persistent;  Irrespective of the extent of lobbying, there will be a deviation from free trade that tends to favor loss-making industries.  The augmented models are more consistent with the observed structure of protection and, in particular explain why many trade policy instruments are explicitly designed to maintain prices at a given level.  This paper--a product of the Trade Team, Development Research Group--is part of a larger effort in the group to analyze trade policy formulation"--World Bank web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 9/8/2004.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.